Rice Farmer

Chronicling the decline of industrial civilization

Tuesday, December 29, 2009

Tanker Glut

There is a big oil tanker glut. Let’s consider what this means. One interpretation leads to the conclusion that there is also an oil glut, and therefore, peak oil is a crock of baloney. In fact, it’s estimated that about 100 million barrels of crude and distillates are stored at sea in tankers, waiting for higher prices. But is 100 million barrels a “glut”? Considering that the world consumes well over 80 million bpd, the oil and distillates stored in tankers come to a little over one day’s supply. Some may call that a glut; I call it a mighty thin cushion. If the world’s oil supply were disrupted even for a short time, those 100 million barrels would disappear in no time. And as I write this, the price of crude is again closing in on $80/bbl as we head into the coldest part of the year in the northern hemisphere. If there truly is an oil glut, why isn’t crude half that price or less?

Therefore, the many tankers and dry-bulk ships sitting idle at sea are a manifestation of world economic collapse, not of a glut of anything. Prior to the first wave of collapse in 2008, dry-bulk shippers were enjoying high rates, which is why there are so many new ships on order. When the next wave of collapse washes over the world, we’ll see a lot more idled capacity.

This is what happens to a system predicated on economic growth when growth slows and begins its decline. In that connection, take a look at this chart and then assure me that we will return to the good old days.

Sunday, December 20, 2009

America’s Really, Really Big Debt Problem

This isn’t the first time I’ve written about the absolutely hopeless debt situation that the US faces. Perhaps you think I am exaggerating. World’s largest economy! High bond rating! Frontier spirit! Yes indeed, these and other sterling qualities of the US and its people will pull the fat out of the fire. Just in time, as in a Hollywood movie.

But even sterling qualities cannot prevail over insurmountable odds. On that note, I turn your attention to a quite shocking article over at Forbes, “Trillions Of Troubles Ahead: A crushing burden of debt threatens to sap America’s growth for years to come.” Sap America’s growth? You have got to be kidding. Just check out some of these desperate, impossible figures. According to the article, adding up public, household, and corporate debt comes to a whopping 557% of GDP. And then it goes on to say, “Add the unfunded portion of entitlement programs and we’re at 840% of GDP.” Allow to remind you to breathe here.

Even the writer of the article recognizes that America’s situation is worse than Japan’s, when you start adding up all the numbers. So when finance/business gurus or politicians tell us that somehow, everything will turn out all right, we can safely conclude that (1) they are self-deluded, or (2) they are lying through their teeth.

For more fun facts, read the whole article. And get ready for the defaults.

State of Hawaii on the Ropes

Things are hard everywhere. But in some places, they’re harder. Unless there is a dramatic turnaround, things could get really ugly in Hawaii. “Hawaii dimmed by severe cuts” gives us a snapshot of how the island paradise is falling apart. Food sanitation, homelessness, education cutbacks, and what have you — Hawaii is the poster child of down-at-heel states. Hawaii’s situation is particularly serious because of its isolation. If food and energy imports were curtailed, deterioration would proceed more quickly than a in state with more ready resources at hand. So here’s another canary in the coal mine. When it falls off its perch is anyone’s guess, but although it might be the first, it certainly won’t be the last.

Friday, December 18, 2009

Paved Roads Revert to Gravel

An AP news story tells how insufficient infrastructure funding is pushing local governments to return some stretches of paved road to gravel road. First street lamps, then paved roads. What next?

Pavement, of course, is a hallmark of civilization. In previous ages, people used stones and bricks. Now we have asphalt and concrete. People have considered it a sign of progress to a higher state of existence when a gravel road is paved. So it is in these new times — the latter days of the Empire — that pavement returning to gravel signifies a transition to a new state. Whether one considers it a “higher state” or not will be hotly debated. Nevertheless, it is happening, just like reducing bus and subway services, and downsizing cities.

Thursday, December 17, 2009

Sovereign Debt and Austerity Budgets

Governments are digging themselves deeper and deeper into debt, beating a dead horse in a bid to ramp up the economy and bring back the good times. Now even Germany has decided to embark on record borrowing to stave off the worst. National and local governments are slashing expenditures and introducing austerity budgets.

The second linked article notes, “By the end of 2009, global sovereign debt will hit almost $50 trillion.”

$50 trillion! And who will pay that back? Any realistic person knows the answer to that: nobody. Of course some of it will be paid back, but there’s a disaster in the making. So what if the EU bails out Greece? That wouldn’t make the debt go away. So far the US has been bailed out by China and Japan, but there are limits. Japan itself is in very dire straits (world’s second-highest debt-to-GDP ratio), and it’s anybody’s guess when the Chinese bubble pops. Same thing within the US: Even if the federal government bails out states, it doesn’t solve any problems in the long run. The Day of Reckoning will surely arrive.

Since the only two ways to deal with debt are paying it off or defaulting, and because paying off $50 trillion is clearly impossible, some big fish will be going belly-up.

Tuesday, December 15, 2009

Lights Out in UK, Too?

In relation to the previous post, the BBC has posted an article about an attempt in the UK to save money by turning off some streetlights. This is likewise an austerity move, not conservation of energy. There has been much discussion about the degraded state of electrical grids, and how they need to be upgraded to prevent blackouts. But this is different: There is not enough money to pay for the energy.

Watch these developments carefully, because industrial civilization is coming to a turning point.

This is more serious than it might seem. Industrial Man expects that we’ll be using at least as much if not more energy in the future as the global economy expands. Instead, we are scaling back because energy is now too expensive. Of course, there may be a last spurt in which, for a time, streetlights are turned back on, and idled buses and subways are brought back into service, but what we’re seeing here is part of an emerging long-term trend in which energy use keeps declining, which will induce the crumbling of socioeconomic systems that assume high energy consumption.

We must distinguish what is happening here from “saving energy,” which means that societies will maintain the same services using less energy. For example, streetlights and buses would be made more efficient. What’s happening here is that those services are just disappearing.

This will require some adjustment on our part (OK, that is an understatement). When we flick the switch, we expect the lights to come on. What happens when they don’t? Indeed, what happens when all the streetlights go out? What happens when more buses and subways stop running? It’s pretty scary when you think of the implications and ramifications.

Sunday, December 13, 2009

UN Official Says Drug Money Saved Banks

The Guardian has posted what is likely to be another controversial article which relates a claim by the head of the UN Office on Drugs and Crime, Antonio Maria Costa, that drug money laundered by financial institutions played a major role in propping up troubled banks during the financial meltdown. Of course such claims are nothing new, but to hear it from a UN official carries more weight with the general public. For those interested, one good source of background information on the murky world of finance and drugs is the From the Wilderness archives (push the “Search” button at the top and do a keyword search).

Monday, December 07, 2009

Inflation of Oil and Gas Reserves

No doubt everyone is aware that oil and gas reserve figures have been inflated. Best known are perhaps the pumped-up figures of OPEC countries, notably Saudi Arabia. And the recent IEA whistleblower announcement made a big splash — when and where it was reported. We think of inflating reserve figures as being intentional, but a posting at the Resource Insights blog throws new light on an area that is rarely visible to the general public. From this explanation it is clear that inflation can also occur as a result of the way the system works. The post is a bit long, but well worth the time.

Saturday, December 05, 2009

Crude Price: A Balancing Act?

Saudi Oil Minister Ali al-Naimi stated that the $75–$80 price range for crude is “good.” But how good is it, really? This statement needs to be examined in the context of energy cost.

It’s clear that this price range for oil is a drag on the world economy. Indeed, we are in the clutches of financial collapse, with more trouble on the horizon. But if we had cheap, abundant energy again, that would be the tonic to hold the system together longer. After all, we all know that cheap, abundant energy is the sine qua non of economic growth. So if we really want to “jump start” the economy, oil has to be much cheaper.

At the same time, energy development is costing ever more, yet investment is lagging far behind needs. The International Energy Agency recognizes this in World Energy Outlook 2009. I quote from the summary:

Energy investment worldwide has plunged over the past year in the face of a tougher financing environment, weakening final demand for energy and lower cash flow. All these factors stem from the financial and economic crisis. Energy companies are drilling fewer oil and gas wells, and cutting back spending on refineries, pipelines and power stations. Many ongoing projects have been slowed and a number of planned projects have been postponed or cancelled. Businesses and households are spending less on new, more efficient energy-using appliances, equipment and vehicles, with important knock-on effects for the efficiency of energy use in the long term.

Development of new oil reserves, for example, was falling behind the depletion rate even before the 2008 crash, so it can only be worse now owing to the worsening financial environment.

Such being the case, how good, really, is the $75–$80 price range for crude? Since we need to invest a lot more in oil field development and in oil-related infrastructure (for example, view this presentation), it seems we need higher crude prices as an incentive for more investment.

Electric power production and distribution is another matter of grave importance. Building “smart grids” and new generating capacity is going to costmore than many people realize.

All things considered, this “good” price for crude appears to be a dangerous balancing act meant to get a price for crude which allows producing countries to keep pumping for the time being, and which also allows the crippled world economy to limp along for the time being. What happens after that?

The Amazing Power of Fossil Fuels

The UK Mail Online has an illuminating article about how many cyclists on dynamo bicycles it takes to power various appliances, and a home with a family of four. We often hear about how many “virtual slaves” each person in the developed countries commands to live our lives of energy luxury, and here is an experiment which actually does it (well, the cyclists are actually volunteers) to illustrate the point.

Imagine when you turn on your hair dryer that 18 slaves start pumping away at their generators to keep that flow of hot air on your head.

But more than anything else, this shows the amazing power of fossil fuels. They drive whole cities and nations, and also make hydropower and nuclear power possible. We should keep all this in mind as we read and write our blogs.

Wednesday, December 02, 2009

Everybody Needs a Business Model

“Somali Sea Gangs Create Pirate Stock Exchange” tells how pirates and their associates have set up a cooperative where people can invest capital, or help the effort in other ways such as by providing materiel. I am serious when I say this is a fine example of what down-and-out people can accomplish when they pool their resources and take risks. One pirate named Mohammed is quoted as saying, “We’ve made piracy a community activity.” Bully for you, Mohammed.

Not that I am condoning crime and violence, of course. If you are a shipowner or a crew member, piracy is a fearsome scourge. It also raises the cost of shipping and thereby makes everything more expensive for everybody.

But let’s look at the situation from the other side. Let’s say you are a dirt-poor Somali wondering where your next meal is coming from. You have no job and no prospects thereof, and virtually nothing but the rags on your back. Maybe you even have someone to support. If you find opportunity in the piracy profession or in a supporting role, do you pass it up because it’s illegal? I’ll be honest by saying that if I were a Somali stuck in such circumstances, I’d most likely hook up with the pirates. (Let me also be honest by saying that I have a wide yellow stripe down by back, so I’d opt for a role that didn’t put me in mortal danger.)

And now we have creative people with a practical business model. Here’s a lesson for a lot of people already out of work and out of hope (and for a lot more on the way). Of course, I don’t mean people down on their luck should take up piracy or some other illegal activity. But the way people are pulling together in this case in a “community activity” is inspiring. So applying this business model to some other (legal) activities may well be the prescription a lot of people around the world need to get the ball rolling.